Notes on “Globalization and All That” Class No. 1
Links to Other Classes
Next Class: No. 2 — Index
Preliminaries
Introduction of John Wooding
- Professor Emeritus of Political Science, UMass Lowell
- Provost Emeritus, UMass Lowell
Why a Course on Globalization?
- this is a big deal today, e.g., tariffs, trade wars, etc.
Upcoming talk entitled “The Globalization Crisis” by Brad Morse
- subtitle: The US-China Trade War and the Future of Global Growth
- Tuesday, September 25, 2018, 3:30-5:00 PM
- O’Leary Library Mezzanine
Week-by-Week Plan
- Welcome to the Global Economic Crisis
- A Little History
- A Little Theory
- Global Trade
- Global Financial and Monetary System
- Globalization and Interdependence
- Development and Global Inequality
- The Future of Globalization
Welcome to the Global Economic Crisis
Today is the anniversary of the global economic crisis
- September 17, 2008
- news item: AIG, Lehman Shock Hits World Markets
- Bush statement on 9/24/08 on YouTube
Disaster Timeline
- April 2007: first signs of trouble, beginning of housing market crash
- August 2007: French Bank BNP has problems with liquidity
- Sept. 2007: UK bank collapsed
- March 2008: JP Morgan agrees to buy Bear Stearns
- July 2008: Authorities prop up Fannie Mae and Freddie Mac
- Sept. 2008: Lehman Bros. collapses
- Oct. 2008: US bails out financial system
- ...
- June 2009: OECD says we’re in worst depression
Results
- Housing prices fell by 31.8%
- Unemployment rose above 9%
- $150B bailout for AIG
- Treasury Dept. spent $350B buying bank and car stocks
Money market fund = pool of money that companies borrow from
- collapse resulted in less money for companies to borrow
Unemployment rate reported in news is not accurate
- does not include, e.g., people with part-time jobs and those looking but who have given up
- at its height, the unemployment rate was probably closer to 20% than the reported 8-10%
GDP vs. GNP
- GDP = Gross Domestic Product
- GNP = Gross National Product
- GNP measures the levels of production of all the citizens or corporations from a
particular country working or producing in any country. For example, the United
States’ GNP measures and includes the production levels of any American or American-
owned entity, regardless of where in the world the actual production process is
taking place, and defines the economy in terms of the private or corporate citizens’
output. Therefore, it includes the compensation and
investment
income received by nationals working or investing abroad. GNP is less commonly
referred to than GDP, but is best described as the measure of national output.
- reference: https://www.investopedia.com/ask/answers/030415/what-functional-difference-between-gdp-and-gnp.asp
- BRICS = emerging economies = Brazil, Russia, India, China, and South Africa
What is the function of the stock market?
- to produce and redistribute capital
- AIG lost its entire value in 3 days, June 7-9, 2008
- in the old days, one invested to earn dividends
- today, one invests for appreciation
- compare to Treasury Bonds
- stability
- N.B. “the state” = the collection of all governments
What caused the crisis of 2008?
- deregulation
- corporate greed, exacerbated by deregulation
- driving stock prices rather than improving products
- and of course many other factors
- beginning in 1995, HUD regulations required Fannie Mae and Freddie Mac to increase their holdings of loans to low and moderate income borrowers
- the Fed manipulated interest rates during 2002-2006
- Fannie Mae, also known as FNMA, stands for Federal National Mortgage Association
- Freddie Mac, also known as FHLMC, stands for Federal Home Loan Mortgage Corporation
The federal standard for welfare payments is $26,400
- one of four children get food stamps
- Supplemental Nutrition Assistance Program (SNAP)
Table 1: SNAP Income Eligibility Limits - October 1, 2017, through September 30, 2018
Household
Size |
Gross
monthly
income
=
130% of
poverty |
Net
monthly
income
=
100% of
poverty |
| 1 |
$1,307 |
$1,005 |
| 2 |
$1,760 |
$1,354 |
| 3 |
$2,213 |
$1,702 |
| 4 |
$2,665 |
$2,050 |
| 5 |
$3,118 |
$2,399 |
| 6 |
$3,571 |
$2,747 |
| 7 |
$4,024 |
$3,095 |
| 8 |
$4,477 |
$3,444 |
| each add’l |
+ $453 |
+ $349 |
What is Globalization?
- growth of networks of interdependence that transcend national and regional boundaries
- economic networks
- communication and transportation networks
- networks linking soldiers, criminals, terrorists
- advocacy networks
- religious organizations
- social organizations
- cultural networks
- entertainment
- language
- education
- shared values?
- Org. for Economic Cooperation and Development:
- A process “by which markets and production in different countries are becoming increasingly ...
- Interconnectedness
- increasing reliance of economies on each other
- opportunities to be able to buy and sell ..
- Integration of Economies
An invention that changed to world: the shipping container
- that is, the type that can be loaded onto cargo ships
- invented by Malcolm P. McLean (1914-2001)
Break
Understanding the Financial Crisis — a very good explanation
CDO = Collateralized Debt Obligation
- A collateralized debt obligation (CDO) is a structured financial product that pools together cash flow-generating assets and repackages this asset pool into discrete tranches that can be sold to investors.
Trade and Financial Capital Movement
- massive increase in global trade in products and goods
- massive increase in the flow of capital and investment — short and long term
- increasing migration of peoples
- instantaneous knowledge at a global level
- raises the question: can governments control their economies and make economic policy that responds to crises, plans, or human need?
How much currency is traded daily?
- US currency $5 trillion per day
- John: “one of the biggest markets in the global economy is the movement of foreign exchange”
- thus, there is a massive market in currency
- what does a trillion dollars look like?
FX = Foreign Exchange Market
- 1,000 times bigger than the NYSE
- $20T in goods moves around in containers
Merchandise Exports by Region
- US, exports 13% or world total
- Europe, exports 37% or world total
- Asia, 31% of world total
- Commonwealth of Independent States, 4% of world total
- Middle East, 7% of world total
- Africa, 9% of world total
- South & Central America, 4% of world total
People on the Move — International Migration
- The number of international migrants worldwide has continued to grow rapidly in recent years, reaching 258 M in 2017, up from 220M in 2010 and 173M in 2000
- Over 60% of all international migrants live in Asia (80M) and Europe (78M)
Growth of Multinational Corporations by revenues
- Walmart = $485.9B revenue in 2017
- State Grid Corp. of China = $315.2B
- Sinopec Group = $267.5B
- China Nat’l Petroleum Corp. = $262.6B
- Toyota = $254B
US National Debt in 2018 = $21.5T = 105% of GDP
- currently $1B/day interest on national debt
John: “Capitalism runs on credit”
John: “Politics is about power and the power to decide what to spend money on”
To whom does the US government owe money
John: “Capital has no loyalty. It will move to wherever the highest interest is.”
Big Questions for Us to Think About
- What’s the relationship between economics and politics?
- Can we resolve the tension between globalization and nationalism?
- Can governments control their economies?
- What is the future of democracy in an interdependent and globalized world?